Snapchat and the Hardware Dreams of Software Companies

In the beginning — before the filters and the rebranding, the $130 sunglasses with build-in video, and the Stories wars with Instagram; before its frat-boy CEO became as chaste as the Jonas Brothers — Snapchat was just an app you used to send disappearing pictures. Ten seconds after you opened a Snapchat (Yosemite in the snow, your friends stuffing their faces with Insomnia Cookies), poof, it was gone. And somehow, in the unknowable whirlpool that is the mass consciousness of the internet, this was appealing. People wanted to use it. According to Snap’s own SEC filing, more than 1 million people were using the app within a year of its 2012 launch; by early 2013, more than 10 million people were Snapping every day. Soon, Facebook came knocking. Snapchat’s spurning of the social-network behemoth’s $3 billion offer was considered arrogant at the time, but it turns out to have been the right call: This morning, Snapchat — restructured in September into Snap, Inc — went public, in what is likely to be the largest tech IPO of the year. Snap’s bankers priced the IPO at $17 a share, giving the company a valuation of $22 billion. In its prospectus filed last month, Snap called itself “a camera company,” shifting its emphasis — at least in rhetoric — fully to hardware.

Snapchat’s transformation from a couple guys in a beach bungalow into the kind of place that hires people from Motorola is part of a broader industry trend: It is, in effect, no longer possible to be just an app, or even just a software company. The announcement in September of Snapchat Spectacles, which allow you to press a button on a pair of rather chic-looking sunglasses and upload a ten-second video directly to Snapchat, was the culmination of a year of hardware launches by Web 2.0 software companies: Facebook started a drone project and a hardware lab; Uber bought a self-driving-truck start-up; and Google, after partnering with LG and Samsung on Android, introduced its own in-house Google Pixel phone.

Uber, Google, and Facebook each made its name as a software organization; and for years, the freedom, speed of execution, and high margins of the software business came to define the modern internet age. Entrepreneurs and venture capitalists were enamored of software’s fast bootstrapping and return on investment, while hardware vendors straggled. But what these companies have come to realize is that not controlling the hardware that their software runs on — be it a car, a phone, or a headset — is limiting. While Apple has been able to support — and draw profit from — an entire software ecosystem by designing and manufacturing its own hardware, the ambitions of companies like Facebook, and to a lesser extent Google, have been restricted by their nature as software companies. It’s hard to think outside the box when the box is built by somebody else.

So, flush with cash and under pressure to dream big, the major software companies have set out to build optimized servers, autonomous vehicles, and balloons that beam internet to sub-Saharan Africa. In the process, they’ve brought resources and software sensibilities to a traditionally closed, insular field. The hardware products that result are designed with software in mind, able to leverage from the get-go the reams of data collected from our searching, swiping, and surfing. At Google, hardware projects are often located within Google X, the company’s prestigious “moon shot” research group. At Facebook, Area 404 is a lab open to all of the company’s hardware teams, where connectivity engineers can learn from experts in failure analysis, networking from FSO.

What makes Snapchat’s hardware ambitions different from Facebook and Google’s, though, is how they’ve been placed — very consciously and explicitly — front and center in the company’s identity, at a relatively early moment in the company’s history. When Mark Zuckerberg talks about Facebook being a drone company, we take it to mean in the sense that building drones is yet another piece of a jigsaw puzzle he’s completing, one that spells out world domination. Google’s hardware efforts, meanwhile — the ill-fated Google Glass, or the affordable VR headset Google Cardboard, for instance — often feel like billionaire pet projects. They are the ambitions of companies and founders who have already secured their legacies. For Snap, though, much is still uncertain — the company lost $514 million last year, and faces fierce competition for advertising dollars. It’s clear that it believes that “reinventing the camera” represents the future of the company, even though it’s unclear what exactly the company means by “reinventing.”

Snapchat’s push into hardware is not without its obstacles. Few things are more sobering for potential Snap investors than reading through the “Risks Factor” section of the prospectus, where the company disclaims, among other items: “We have limited manufacturing experience for our only physical product, Spectacles, and we do not have any internal manufacturing capabilities. Instead, we rely on one contract manufacturer to build Spectacles.” The company is unlikely to make money on the glasses for a long time; and in January, TechCrunch reported that a pair of Spectacles had caught fire while charging, in the same sort of malfunction which nearly crippled Samsung last year.

Perhaps the biggest risk of all is that Snap’s hardware isn’t ambitious enough. Companies like Google and Facebook enter the hardware business not just to create new revenue streams or to ensure top software performance, but to create new platforms — marketplaces like Apple’s App Store, where they can connect users to businesses and advertisers, all the while taking a cut. Glass was more than just a consumer gadget, it was a new way to gather data and sell advertising. Spectacles is still, at heart, a camera, not a platform; and as such, its revenue potential is limited to the sale of the object itself.

And yet, even with the single questionably revolutionary product, Snapchat hardware suggests some of the software-feature wisdom that has often impressed and surprised bystanders in Silicon Valley. Earlier this year, my roommate, a fan of the company, early-bird purchased a pair of Spectacles. They look like fairly ordinary sunglasses, except for the yellow button on the top. In a neat trick of sight that emphasizes the circular video format, when you watch a snap taken by Spectacle on Snapchat and rotate the device, the image stays in the same orientation. Natively integrated with a popular social platform in a way that pure hardware vendors have struggled to be, it’s easy to imagine Spectacles replacing wearables like GoPro — or even, eventually, with filters, an augmented-reality headset like Meta. In Snapchat’s IPO roadshow video, Snapchat’s CEO Evan Spiegel talks about how “cameras have evolved from just a piece of hardware, like a chip, to a software connected to the internet.” With Spectacles, they’ve bet on a camera that’s both.